Devil's Advocate

Roger Elwell - Yes Please

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Bank Restructuring Wrong on so Many Levels

03 November 2009 | 4091 views | 3

"I believe what we have here is a better deal for the taxpayer," so says Alastair Darling. No it isn't. The best thing for the taxpayer is for these institutions to be nursed back to health as they are and the shares sold on the open market at a profit
- later. Carving up the banks is not good on so many levels:

1) Selling branches. Re-creating TSB and W&G will mean that both will require migrating to different banking platforms, etc. This will cost lots of money for the buying institutions, and will also cause a resource drain on RBS and Lloyds,
whose staff will have to support those processes as they happen - time and effort they should be expending on returning the banks to profit. How is that a good use of taxpayers' money? Surely, the Government understands that, when a bank acquires another,
they amalgamate systems, processes, etc., and therefore extraction is not a simple and cheap thing to do...? If they wanted to shrink Lloyds, surely the best thing is to split off parts of Halifax (like their branch network), rather than TSB, as the degree
of integration is likely to be lower at this point in the acquisition?
Still, the future for the consulting community is going to brighten, as this is hardly 'business as usual' and most organisations will be needing outside help to undertake these extractions....

2) Selling branches (2) Most people who will end up in W&G or TSB actually chose to open accounts with Lloyds and RBS, not with W&G or TSB. What choice do they get to stay with those institutions at the time of the sale? If they are allowed
to move to a different RBS or Lloyds branch (and let's face it, the branch isn't that much of a pull these days - you bank with a bank, not a branch), how does the buyer know what they are buying until much later in the sale process? If a customer is not
allowed to switch before the sale, surely that infringes their rights? If I were in that position, and felt strongly enough, I'd be pretty unhappy and might well move my business anyway - another cost to the banking system and a real inconvenience to me.
Also, we know that many customers have multiple relationships these days (current account, savings, mortgage, credit card, etc.). Will the new banks offer the same range of service and, if I had a Lloyds account today and have to move to TSB, will I also have
to move my credit card, etc.? If not, why would TSB be happy with me keeping a relationship with Lloyds?

3) Selling RBS' insurance business now would surely not be good for the taxpayer. The last time they tried to sell them, they did not get suitable offers. What makes anyone think that they'll get better offers when they are made to sell them
to a timescale? How would this represent good value for the taxpayer?

4) Selling Global Acquiring - the same principle applies, with the added twist that, not being able to offer a corporate client an acquiring deal will place RBS at a disadvantage compared to the UK banks that still can do so - or will the
Government allow RBS to start up a new acquiring business once they've sold the old one? In this case, there must be the risk that RBS will lose lots of profitable commercial relationships because their range of service has been diminished. Perhaps Mr Darling
can explain how this adds to taxpayer value...

5) Injecting competition. I don't buy this one at all. Even the demutualised building societies became so like banks that they were...well, banks, before (most of them) collapsed. The new entities will very quickly assume the characteristics
of the mothers that begat them, and we won't see any benefit, believe me.

This is a pig's ear of a decision. Nurse the banks back to health, I say; sell the stakes later at a profit (maybe to ease the frightening national debt we will have by then) and then use other measures (taxes, pricing controls, etc.) to reduce any monopolistic
tendencies that these banks may be exhibiting. We should tell the EU commissioners to take a hike and determine for ourselves what the best process should be. If the Government genuinely believes this is the best way forward, then bring on the General Election,
sooner rather than later...